Port fiscal policy challenged

Private sector should pay greater share, commissioner says

By KRISTEN MILLARES BOLT, P-I REPORTER

Published 10:00 pm, Wednesday, October 11, 2006

The Port of Seattle's seaport had a lot more money coming in than the Port of Vancouver last year, but it lost $24 million while the Canadian port made $28 million, according to an analysis by Port of Seattle Commissioner Alec Fisken.

He'd like to know why.

Fisken's analysis found that Vancouver's seaport made that profit in 2005 on nearly $20 million less in business revenue.

Part of the reason he conducted the analysis, Fisken said, is that "I don't like the way we do our income statement. We show things in such a way as to not show what a big loss we have at the seaport" once the property tax levy is factored out.

Port of Seattle officials said Wednesday that the answer to Fisken's question is complicated and that they couldn't respond in detail after being asked to comment.

But some clues could lie in the philosophies underlying each port's operations.

Simply put, it is not the Port of Seattle's mission to focus on profits. The port's mission is to create long-term benefits for businesses and people in King County -- not necessarily to maximize profits.

"Our legislation says we must make a profit and be self-sufficient," Houston said. "The way you do it is by efficiency."

And the Canadian port has required some of its tenants to make major contributions to projects that will benefit them, such as the two-year, $155 million redevelopment at Centerm, one of its major container terminals. Its terminal operator, P&O Ports Canada Inc., secured $130 million from its parent company for the project.

Meanwhile, the Port of Seattle undertakes the majority of its expansion projects alone, such as the $120 million project to reconvert Terminal 30 into a container terminal and moving the cruise lines to Terminal 91.

The fact that the Seattle port pays for large projects that benefit private businesses has been criticized. The port defends the practice as central in its role as a regional economic engine.

Requiring companies to help pay for large projects marked a significant change from the way the Port of Vancouver used to act, said Houston, who added that limitations on the lease lengths the port could offer during the 1980s scared away tenant capital investment.

"We could only sign five-year leases, but the capital investment to improve a terminal was quite high," Houston said. "And what tenant would contribute $100 million to a facility that is only guaranteed a five-year lease? So we tended to be a banker."

Now, Houston said, the Port of Vancouver can sign much longer leases, making it worth the tenant's while to invest, and reap the benefits over the long term.

Port of Seattle spokesman Mick Shultz called Fisken's comparison of the Seattle and Vancouver ports' income statements unfair because the two ports have different investments in a range of businesses.

Beyond that, Shultz said the port could not properly comment until officials had further studied Fisken's numbers, which were drawn from the Port of Vancouver's 2005 annual report and the Port of Seattle's 2005 financial report.

Shultz said the two ports "have different reporting structures and requirements." He said comparing the two ports' finances was like comparing apples and oranges.

The Port of Vancouver can, and did, decline to break down its financial performance more precisely, and it does not have to disclose the funding or benefits it receives from various governmental agencies.

Therein lies the rub: The Port of Seattle's direct subsidy -- the property tax on King County homeowners -- is known. Last year, it came to $55.7 million.

While Houston said that "nobody is allowed to give us money," the port does get special breaks from its government.

Its chief financial officer, Tom Winkler, said the Canadian government forgave loans of almost $104 million dollars in the early 1980s, but he said the port receives little money currently. Like the port of Seattle, though, it can apply for federal funding for security initiatives.

"When it became the Vancouver Port Corporation ... that changed the relationship of the port to the federal government, and it discontinued some forms of subsidy," said University of Washington professor David Olson, who researches the political and economic performance of public enterprises.

"They are still a subsidized port, as all ports, everywhere, are subsidized in one way or another."

Houston said the Port of Vancouver did not receive money in the form of debt forgiveness when it was transformed in 1999 from being the Vancouver Port Corp. into the Vancouver Port Authority. As the Vancouver Port Authority, a for-profit corporation, the Port of Vancouver is more independent from the federal government.

However, that does not mean that it doesn't benefit from government projects. Last October, the Canadian federal government pledged $590 million in various transportation projects designed specifically to strengthen Canada's trade relationship with Asia.

"That is not strictly for the port by any means," Winkler said.

But it does stand to gain, as do the commuters who use those roads and the many businesses that support trade in Western Canada.

Similar projects in Washington also benefit the Port of Seattle -- and often require the port's financial contribution.

Investments in infrastructure both in and around each port are necessary to capture the wave of goods surging from Asia.

The issue, Fisken said, is that the port should require private companies to contribute more to port projects from which they profit.